Proposal would reduce larger homes' write-offs

NATION'S HOUSING

October 14, 2007|By KEN HARNEY

Though the housing and real estate industries oppose the plan, a key House committee leader's proposed "carbon tax" cutbacks on mortgage interest deductions are attracting strong support from environmental and scientific groups.

Rep. John Dingell, D-Mich., chairman of the powerful House Energy and Commerce Committee, wants to phase out mortgage interest write-offs for houses larger than 3,000 square feet, using a graduated scale that ends at zero deductions for properties with 4,200 square feet or more.

Though he says he recognizes that newly constructed houses may be "more energy-efficient" than older ones, their "sheer size, sprawl and commutes lead to dramatically more energy use - or to put it more simply, a larger carbon footprint."

In his latest draft of the plan, Dingell provides more detail about the housing-related tax elements than he did in earlier versions. The new draft also offers some limited exemptions from the phaseout, including for "historical homes" built before 1900, farmhouses, certified energy-efficient homes and houses whose owners "purchase carbon offsets to make the [property] carbon-neutral."

Under the plan, owners of homes containing 3,000 to 3,199 square feet would be eligible for only 85 percent of the mortgage interest deductions they currently receive. Homes of 3,600 to 3,799 square feet would lose 60 percent of the interest deductions, homes of 4,000 to 4,199 square feet would lose 90 percent and homes above 4,200 square feet would get no deductions.

Mortgage interest write-offs are among the largest benefits in the federal tax code. The congressional Joint Committee on Taxation estimates that homeowners will take $402.7 billion in deductions between fiscal 2006 and 2010.

Some environmental advocates initially questioned Dingell's purposes in advancing an ambitious program to limit greenhouse gas emissions - he has been a staunch defender of the auto industry for years. But Dingell's plan would impose stiff new taxes on gasoline (50 cents per gallon to start), a $50-per-ton tax on coal, petroleum and natural gas, plus the mortgage interest deduction clampdown.

Now a number of scientific and environmental organizations think Dingell's proposals represent a gutsy first effort not only to cut consumption of carbon-based energy products, but also to focus on energy usage and efficiency in the residential arena.

Lexi Shultz, Washington representative for climate policy of the Union of Concerned Scientists, says "the residential part of the [climate change] problem is very significant," ranging from excessive carbon-based energy consumption in homes to exurban sprawl development of primary and secondary homes requiring long commutes and more highways.

Shultz's group favors taxes on energy consumption as a way to change behavior, but also supports a companion "cap and trade" plan that sets specific carbon-reduction goals and auctions of "offsets" for industries and other high consumers of energy. Revenues from the auctions could be used to assist low-income and other consumers who would be economically harmed by higher prices associated with carbon taxes.

Dingell's stated goal is to reduce carbon emissions in the United States by 60 percent by the year 2050. Erich Pica, director of economic policy for the environmental group Friends of the Earth says Dingell's plan "overall is good," and applauds its focus on residential real estate.

"The mortgage interest deduction was meant to be an incentive for people to buy and afford a home, but now we see it has significant energy impacts" - subsidizing development of ever-larger first and second homes in subdivisions far from the city. Though Pica says the choice of 3,000 square feet as a cutoff point "may be a little arbitrary, the intent is right."

Charles Komanoff, co-director of the Carbon Tax Center, an energy-policy think tank, says, "We think Dingell's idea is terrific - the carbon tax would give important incentives to minimize energy consumption," and would discourage sprawl over the long term.

Dingell has not yet introduced his legislation, key portions of which will be directed to the House Ways and Means Committee that traditionally has supported tax benefits for housing. The National Association of Home Builders and the National Association of Realtors both have criticized Dingell's plan as impractical and mistargeted at the square footage of residences rather than their measurable energy efficiency.

But Komanoff argues that the carbon tax will hit the correct target. "Big houses consuming lots of energy will pay more" than smaller, energy-efficient homes, he says. Environmental advocates say they recognize Dingell's plans will be highly controversial with some of the biggest, best-funded lobbies on Capitol Hill. But they believe that even if some portions of it fail in this Congress, growing public awareness of the effects of global warming - and the key role played by housing and real estate - will eventually help produce needed reforms.